How to Find Fixer-Upper Homes

A fixer-upper can be an incredible opportunity for the right investor, especially those considering properties for the midterm rental market. These properties, which cater to tenants looking for stays of a few weeks to several months, often need a bit of work before they can be marketed effectively or rented out. By targeting fixer-uppers in desirable areas for midterm rentals, investors can cater to a growing demographic of remote workers, relocating families, or temporary residents. Careful consideration is required to ensure that the investment in renovations will be recuperated through rental income over the property’s lifecycle.

Understanding Fixer Upper Homes

Fixer-upper houses are properties that require significant repairs to be rentable or sellable. In many cases, the fixer-upper home will have serious problems that the homeowner could not afford to fix. For example, they may need a new roof or significant structural work.

While you can often get fixer-uppers at a far lower purchase price than a move-in-ready property, they also require a substantial amount of time and money. They can be a worthwhile investment for someone who can fund renovations and has a good eye for potential. At the same time, they can turn into a money pit for an inexperienced investor who chooses unwisely. 

Evaluating Your Readiness for a Fixer-Upper Project

Fixer-uppers can mean a good profit for real estate investors, but it depends on their financial circumstances and personal preferences. Before you decide to buy a fixer-upper, consider these essential factors.

Financial Circumstances 

A fixer upper house generally requires a steady income stream before you start making money — you'll need to afford the down payment, closing costs, and renovation costs.

Also, you will be responsible for any liens or unpaid property taxes the fixer-upper may have. You can run into severe financial trouble if unforeseen delinquent taxes come due or you exceed your renovation budget.

Time Investment

Fixer-upper houses often take much longer to get to market than comparable homes without serious issues, which means you'll be carrying costs for a lot longer without a payoff. You will also have to spend time either managing the restoration work or doing it yourself, which not everyone is prepared for.

Renovation Skills

When buying a fixer-upper, you need to be aware of the sweat equity involved before you can present it to potential buyers. From putting a fresh coat on peeling paint to orchestrating construction work and navigating contracts, you'll need excellent management and some rehab know-how to get the perfect fixer-upper ready for sale. 

Where to Find Fixer Upper Homes

When you begin looking into how to find fixer-upper homes, you may immediately think of looking at the Multiple Listing Service (MLS). While this is a good option, there are plenty of other ways to find fixer-uppers, many of which are even more advantageous. Here are some of the best ways a potential home buyer can access more houses for less money.

Real Estate Agents

A real estate agent is always an excellent resource for real estate investors, as they know the local market better than anyone. An experienced agent has direct access to the freshest listings on the real estate market, and they tend to have a strong network of other professionals who may know of fixer-upper homes that have just become available. 

Online Marketplaces

You would be surprised at how many people find fixer-upper houses on places such as Craigslist or Facebook Marketplace. Most buyers overlook these options, unaware that their next good investment may be on a social media site.

As there is rarely a middleman, you can negotiate a good price and also gain insight into the history of the fixer-upper, introducing you to potential concerns that you'll need to budget for.

The Federal Housing Administration also has a site for fixer-upper homes in a given area that may be a worthwhile place to look. This site will generally give you a good idea of the condition of the fixer upper house, such as termite infestations or structural damage, so you can pass on a property that requires renovations outside of your budget. 

Public Auctions

Auction properties tend to be fixer-uppers. They may be sheriff's seizures or estate sales where family members sell a decedent's assets. You can often get a great price on a fixer-upper, but you may not have as many financing options.

You'll have to check lender websites carefully or contact them to see if they will provide you with a mortgage for an auctioned property. Often, you will need to put a deposit on the property, so have cash reserves ready for this. Also, check the tax records to ensure there aren't any liens on the property before you buy. 

Bank Foreclosures

Foreclosures are one of the best ways to find a fixer-upper home. While sometimes they are turnkey homes, they are generally homes whose owner fell on hard times and could no longer finance their mortgage, meaning they likely failed to keep up with maintenance, too.

A real estate agent can get you in touch with banks, or you could check their websites to seek out your secondhand dream home. 

Local Advertising

The local newspaper is a great place to find short sales, as well as information about local real estate wholesalers. These are individuals or companies that put a fixer-upper under contract, then turn around and sell that contract to an interested investor. They will not perform any home inspections or renovations — all that is up to you.

Real estate investor websites in your region can clue you into how to find fixer-upper homes in your city or state, and they can also give you advice on their potential resale value, good home inspection companies, and worthwhile investments that will boost curb appeal. 

Does a fixer-upper involve renovating the entire house?

Buying a fixer-upper does not necessarily mean that you completely gut and rebuild the home, though some advanced renovators will do so. You need to assess how much you are willing to spend and prioritize the most urgent areas rather than committing to repairing every little issue.

Often, the investor will have a home inspection ordered and fix the most significant issue that the inspection reveals. They may focus on areas of the house that need the most work, then give everything else a nice coat of paint and some light repairs.

The extent to which an investor will renovate a fixer-upper house depends greatly on their budget and the overall condition of the property when they purchase it. Most investors will leave plenty aside for surprise costs that may arise before the next home purchase and devote most of their attention to making everything safe rather than perfect.

It may also depend on what they intend to do with the fixer-upper. For example, if they're going to turn around and sell it, they will ensure it looks showcase-ready. However, if they're going to rent it out, they will make it habitable and attractive, then perform more repairs as they become relevant. 

Assessing the Potential of a Fixer-Upper

Deciding on the potential of a fixer-upper house depends on the results of a home inspection, how much it will cost to renovate, and the general circumstances of your local market.

Firstly, you should always hire a home inspector to give everything a once-over before you commit to anything. This will let you know if there are drastic issues that can't be easily repaired, such as bug infestations, serious plumbing issues, or extensive wiring problems.

Any major code violation should be seen as a black mark against the fixer-upper and a potential reason to walk away from the deal.

Lead paint or asbestos should be an immediate no, as they are incredibly dangerous and require extensive repair. Mold remediation can also be very costly, and it can also lead to structural problems, such as rotten supports. Foundation issues are of serious concern, especially as they may lead to the entire property being condemned.

Should the property not have any of these serious concerns and you feel comfortable moving ahead, it's time to think about construction. The home inspection can help you estimate the repair cost based on the most pressing issues.

Get in contact with a quality contractor in your area to give the fixer-upper house a once-over and tell you what needs to be fixed. You can then get cost estimates and identify whether they are within your budget.

Lastly, consider the local market. The lower price may not be worth the upfront expense if the current market in your target neighborhood is poor and the market value isn't expected to rise significantly by the time you're ready to sell. 

Financing Your Fixer-Upper Project

When you find fixer-upper houses that pique your interest, it's time to think about financing. The most common one is a conventional mortgage, which works much like that for your typical primary residence.

Generally, they are a fixed-rate loan with a 30-year period. You may want to look into a one-close construction loan, which gives you money for renovation costs as well as the mortgage for the property.

You can also pursue FHA 203(k) loans. These are loans up to $35,000 made to repair, improve, or upgrade an existing home. They're a good option if you have more extensive repairs, such as fixing a structural problem.

Lastly, investment property loans from private lenders are a good option if the fixer-upper is almost in turnkey condition and you intend to use it for rental property. Our rental property loans and vacation home loans provide you with flexible financing for properties that need only minor fixes before they're ready to rent.

Investment loans are an excellent option for self-employed investors and developers, as they lack the strict eligibility requirements that can be an issue with conventional loans. 

Navigating Legal and Zoning Considerations

You will likely need to get permits when working on your fixer-upper house, and there are often restrictions on how, when, and for how long you can turn the property into a construction zone.

If you're planning on changing the usage of the property — for example, turning a residence into a storefront — you will need to check with the zoning board to ensure that it's possible to do so. Otherwise, you'll be hit with hefty fines and potential legal issues.

Building codes are a major concern for anyone performing renovations, as are securing the proper permits to perform work up to standard. In many states, you'll need to have licenses to perform certain kinds of work, such as electrical and plumbing repairs.

Even if you intend to do mostly DIY work when you buy a fixer-upper, you should consult with a contractor to make sure that everything is done to standard and the property will be perfectly legal and safe when you're done. 

Is a Fixer-Upper Right for You?

When it comes to buying a fixer-upper, the key takeaways are to perform your due diligence and ensure that you're not taking on more than you can handle. You can seek out these properties in various ways, including real estate agents, local marketplaces, and newspapers.

Develop a budget and stick to it, both when you buy the house and when you conduct renovation work. Always get a home inspection before signing anything to avoid serious remediation problems, such as mold, lead, or asbestos.

Ready to buy your first fixer-upper? Contact Visio Lending to learn how we can assist you in meeting your investment goals.